It was a remarkable year for the Greggs (LSE: GRG) share price, but there are doubts about whether 2020 will be as good. I think it will, and here are three reasons why.
Past performance provides no guarantee of future performance — that is well known. The Greggs share price leapt by just over 60% in 2019, and over the last five years it is up 220%. Despite occasional hiccups, in this century the share price has increased 15-fold. That’s a nice return, very nice indeed. But can it continue?
In the run up to the release of Greggs’ fourth-quarter trading update, the markets prepared themselves for good news.
The company duly delivered. Total sales were up 13.5%, for example. In response, the share price initially rose, then fell back sharply, before eventually returning to a level marginally higher than the price before the update. The results were impressive, but then they were expected to be. That is partly why the share price reaction was not more dramatic.
More to the point, the update contained warnings — one about the risks of cost inflation, especially for its pork-based products. Related to that, it warned that increases in the living wage would also increase its costs. It warned about sales comparatives as well.
Greggs has got three things going for it. Two are down to its own corporate culture, the other is the wider market trend, which Greggs happens to be good at riding.
Greggs does agile
First of all, Greggs has skilfully adopted agile work practices, meaning it’s good at experimenting with new ideas and quickly adapting to changing circumstances. Its agile approach also means it may well be able to counter rising wage costs through a degree of automation — not necessarily replacing existing jobs, but perhaps not increasing its staff count as fast as store growth.
Second, the company’s marketing, especially the way it has adopted social media, has been superb, a true master class in adopting digital marketing techniques. Its famous vegan sausage roll has enjoyed a remarkably high profile across social media.
Plant-based meat substitutes
Finally, there is the move towards plant-based meat substitutes. The Greggs vegan sausage roll has been grabbing the headlines, and its meatless steak bake is likely to be equally popular with the media, across social media, and no doubt among its customers. It is this wider trend towards plant-based meat alternatives that provides the opportunity. In fact, this week a company revealed a plant-based pork substitute — maybe Greggs can turn increasing pork prices into another social media triumph via a pork substitute product.
The Greggs agile approach and social media mastery means that I believe that it will embrace these opportunities and continue to tap into new consumer trends. Not so many years ago, shareholders in Greggs may have become quite alarmed if they had thought demand for vegan and healthy food was set to grow rapidly. Not many would have predicted the adroit way in which Greggs would adapt. There’s no reason for it to not continue doing so.
That’s why I believe the good times for the Greggs share price are far from over.
Matt Baxter has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020